Ask Bill your personal finance question

Chapter 13 vs. Deed in Lieu of Foreclosure

I cannot decide between a Chapter 13 or a deed in lieu of foreclosure? Which should I choose?

I am in 4 months default of my mortgage loan modification and had met with an attorney to initiate a Chapter 13 petition on my behalf. I've paid him the first 2 initial payments to total around $400. A week after our first meeting, my mortgage holder (SPS) sent me a letter offering me the options of a Short Sale or a Deed in Lieu of Foreclosure. I faxed this letter over to my attorney and asked him if it was something we needed to discuss. He assured me that it was "nothing" and filed my petition the following week. Since then, I have investigated the Deed in Lieu option under the HAFA program, under which SPS is offering me the option. I called to discuss it with them, as a friend who owns a number of properties pointed out that they will very likely come after me for the $50K deficit between the mortgage balance and the property value. While SPS assured me that this amount would be written off, they did let me know I would be receiving the 1099C at the end of the tax year. I've since looked into the debt forgiveness rules for the state of VA and am not sure VA also allows the taxes on the forgiven amount to be written off, due to it being my primary property or even the fact that I have been declared insolvent, thus the Chapter 13 petition? Also, if VA is participating, will I be able to agree to the Deed in Lieu and cancel the Chpt. 13 petition? AND, will I be required to pay my attorney his full fee, if I do cancel the petition and go for the Deed in Lieu? Why did he not even bother to advice me that it might be the better alternative and dismiss their offer as "nothing" other than just wanting to get paid by me???

Read full question
Bill's Answer
3.5
/5.0
(4 Votes)

Bills.com | Find Learn Save
Highlights

  • Make an appointment with your attorney now and explain that (I am guessing based on the context of your message) that your goals have changed, you do not want or cannot afford the property anymore, that you really want to sell it, and that you want to aba

Your friend and I are the last people you should be talking to about your situation. Make an appointment with your attorney now and explain that (I am guessing based on the context of your message) that your goals have changed, you do not want or cannot afford the property anymore, that you really want to sell it, and that you want to abandon the Chapter 13 filing.

Quick Tip
Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

However, if your goals are really to hang onto the property, then stop looking at short sales and deeds in lieu of foreclosure. If you cannot decide whether to keep or sell the property, stop and assess your goals. You cannot both keep the property and sell it.

Quick Tip
Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.

If you are interested in selling the property (and what I am about to say is not a recommendation that you do) please see the Bills.com resource Home Affordable Foreclosure Alternatives Program (HAFA) to understand programs that may help you.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

Get Mortgage Rates!
3.5
/5.0
(4 Votes)

People also like to Read

Betsalel Cohen

Mortgage programs have different minimum credit score requirements. However, lenders often have stricter rules. It is importa... Read more >>

Daniel Cohen

FHA Loans | FHA Loans have huge benefits, including VERY low down payments and low credit limits. Get FREE info on FHA loans... Read more >>

Betsalel Cohen

Mortgage Basics - Down-payment, Equity, and LTV | Learn about mortgage terms relating to your property's value and how it aff... Read more >>

Betsalel Cohen

Whether you are refinancing or buying a home you will ask yourself if you can afford the mortgage. Learn to prepare and evalu... Read more >>

Betsalel Cohen

Qualify for a Mortgage | You can get qualified for a mortgage and the best rates by preparing yourself. Make sure that your c... Read more >>

Mark Cappel

Applying for a mortgage with bad credit and a spouse isn't as difficult as you may think. Learn the what lenders look for whe... Read more >>

Betsalel Cohen

PMI | If you are looking to buy a house and take a mortgage loan with a low down payment then PMI can...... Read more >>

Brad Stroh

Refinance My Home? If you are asking 'Should I refinance my mortgage?' or 'Is refinancing my home a good?', then check out ... Read more >>

2 Comments

Recent Best
1500 characters remaining
  • BA
    Jun, 2010
    Bill
    Maybe. The answer to your question depends on your financial circumstances. Find an attorney in your state who has experience in bankruptcy. He or she will review your financial information and give you precise advice.
    0 Votes

  • 35x35
    Jun, 2010
    marie
    My home value right now is $342K (zillow) my 1st loan amount is $380 n my 2nd loan is $108. My questions is can I file chapter 13 bankruptcy? Is my second loan can be eliminated by filing chapter 13 bankruptcy?
    4 Votes

loading...